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Summary

Summary - Remedies (LL104 - Contract Law)
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  • Course
  • Contract Law (LL104)
  • Institution
  • London School Of Economics (LSE)
  • Book
  • Contract Law

This set of notes helped me prepare for my Contract Law exam and I achieved a 2.1 in my exam, graduating with a first class honours overall. This document sets out the key principles and cases to cite in your exams.

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Document information

  • Yes
  • January 3, 2021
  • 17
  • 2016/2017
  • Summary

Subjects

  • condition
  • warranty
  • innominate term
  • remedies
  • remedies for contracts
  • certainty
  • breach of contract
  • consequence of breach
  • contract law
  • law of obligations

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  • London School of Economics (LSE)
  • London School of Economics
  • Contract Law (LL104)
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Remedies



Classification of terms

 Condition – essential term that goes to the root of the contract.
o Remedy for breach of condition is EITHER terminate the contract and obtain
damages OR affirm the contract and obtain damages.
o Promissory condition – Party promises to do a particular thing and failure to perform
is a breach of contract
 Warranty – Lesser subsidiary term
o Remedy for warranty is ONLY damages and must continue with his obligations under
the contract.
 Innominate term – A term which does not automatically give right to terminate if breached
(like a condition) but does not confined innocent party to right in damages.


Condition

A term can be a condition in one of three ways:

Statutory classification

 Sales of Good Act 1979 imply terms into sale of goods contract.
 Satisfactory quality, fitness for purpose and compliance with description and sample are implied
conditions (section 13, section 14, section 15)
 Goods being free from charges in favour of third parties is an implied warranty under the Act.


Judicial classification

 May decide the performance goes to the root of the contract and by necessary implication the
parties have must intended the term to have been treated as a condition
o It’s not necessary for the breach of the term to deprive the other party of substantially
the whole benefit that he intended to obtain from the contract (Bunge Corp v Tradax
Export SA [1981])
o Courts regard practises of commercial community to ascertain the significance of the
term
o Where an experience trade arbitrator or tribunal has made a decision based on
commercial significance of a term, courts will be reluctant to interfere with the finding.
 Precedent/binding authority means courts may classify a term as condition
o If court finds a standard term a condition, it will be a condition in all contracts with the
standard term thereafter. For example, time at which vessel is ready to load for a voyage
charter is a condition (The Mihalis Angelos [1971])
o The governing factor for this is need for commercial certainty BUT because of this
parties can sometimes terminate the contract on a breach of condition even if the
breach caused them little/no hardships. For example, Acros Ltd v E A Ronaasen & Son
[1933] – Timber under the contract was supposed to be half an inch thick, it was actually
9/16 inch thick but could be used for making cement barrel still. Buyer rejected this as
breach of condition even though the real reason for rejecting was that the price of

, timber had fallen. Court do not inquire the real reason because of cost and uncertainty
involved in inquiring actual motives behind terminations.


Classification by parties

 If a contract states a term is a condition it will generally be held as a condition. For example in
Lombard North Central plc v Butterworth, in a computer hire contract, a clause stated paying
each instalment promptly was of the essence of the contract and so it was held that failure to
pay a single instalment was enough to count as a repudiation of the contract and allow claimant
to terminate the contract and claim damages.
o Presumption favours freedom of contract as if parties agree a term is a condition it will
be held as such, and sometimes court will refuse to subject terms to the penalty clause
jurisdiction.
 BUT courts must be certain the parties used the word condition in it’s technical sense. Schuler
AG v Wickman Machine Tool Sales Ltd [1974] a clause held it was a condition Wickman must
visit the manufacturers every week to solicit orders. Wickman failed to do so and court held
condition was not used in it’s technical sense
o Lord Reid said the more unreasonable the consequences of treating a term as a
condition, the less likely the parties intended the term to be a condition.
o Lord Wilberforce dissented, and said the majority assumed the parties adopted easy
going tolerance instead of aggressive punctuality and efficiency.
o It can be said contract was poorly drafted so majority were able to use that to justify
rejecting the construction that had unreasonable results in their view.
 Term can only be a condition if BOTH parties agree. In the case where the innocent party serves
a notice to the other party making performance of a particular obligation ‘of essence of the
contract’ failure of which will be regarded as repudiation and give rise to termination of the
contract:
o if the term is an essential one already then it will have effect
o but if it is a non-essential term, this will not actually be enforceable in court and will not
give rise to termination of the contract. One party cannot unilaterally change a non-
essential term into an essential one.


Certainty v Injustice/Need for change?

 Emphasis on terms that’s broken rather than the consequences of breach. Two reasons for this:
o Freedom of contract, parties should get to decide the importance of their own
contractual terms.
o Need for commercial certainty. Waiting to assess consequence of breach leaves room
for uncertainty. Once a term is classified as condition, a breach of it gives automatic right
to terminate.
 BUT uncertainty still remains in classifying terms. Sometimes courts decide differently on
whether a term is a condition. The Naxos – First instance judge and CA held seller having goods
ready for delivery in a specified time frame condition and HL did.
o This type of uncertainty is confined to mostly previously unclassified terms and
classification of term for the most part does ensure great degree of certainty.
 Certainty comes at a cost of injustice. Like in Acros v Ronaasen, the motive for termination was
the bad bargain and not the breach of condition.

, o This could be avoided if consequence of breach was looked at in determining whether a
term is a condition as sufficiently serious breach would mean term is condition and
innocent party can terminate. But this would sacrifice certainty.
 Another criticism of classification of terms is it encourages termination of contract as great
willingness to classify a term as condition encourages termination of contract rather than their
performance even though contracts are made to be performed.
o BUT this is not always the case, classifying a term as a condition which gives rise to
termination if breached can act as a deterrent. The hirer in Lombard will presumably
take greater steps to perform his obligation under future contracts. Classification of
terms acts as an incentive and thus this argument is not very convincing.
 General view is that in cases like Acros v Ronaasen, the pendulum swung too far towards
certainty and balance should be attained.
o Statutory restriction placed upon buyer’s right to reject goods under s 15A of Sales of
Goods Act 1994 which states if seller is in slight breach of implied terms under s 13 to 15
of the Act, it will be treated as breach of warranty.
 BUT depends on what slight means, like in Acros, difference between half inch
and 9/16 inch might not be slight but didn’t have consequence on cement
barrels.
 LIMITED because doesn’t apply to seller’s right to terminate following breach of
buyer or breach of an express term of the contract or breach of s12 in the Act.
o Focus on consequence of breach and allow greater remedial flexibility for courts. Done
through innominate terms.
 If attention is given to justice, classification as innominate term will be favoured. If attention is
given to certainty then classification as condition will be favoured. Tis requires balancing
exercise from the courts to assess completing policy considerations on a case by case basis.
o Pattern shows court have been reluctant to find a term to be condition unless there’s
clear evidence or where the need for certainty is greatest. Other than that greater
consideration will be for justice and innominate terms to allow courts remedial flexibility
in granting appropriate relief.
o Hansa Nord – Buyers of citrus pulp rejected shipment priced 100,000 on the grounds
they were not in ‘good condition’, they bought it through an agent at the price of 30,000
and used it for intended purpose. CA held the term was innominate term and did not
give buyers right to terminate as breach was not sufficiently serious. This approach
avoids injustice of Acros v Ronaasen.

Innominate term

Allows greater remedial flexibility to court and focuses on consequence of breach in determining
whether there is a right to terminate.

Factors courts consider when deciding include:

 Any detriment caused by breach
 Delay caused by breach
 Value of performance given and received by innocent party
 Cost of making any performance given or received by party in breach conform to
requirements of the contract
 Any opportunity enjoyed by party in breach to remedy the discrepancies in its performance
 Whether innocent party would be adequately compensated with damages

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